Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Marathon Petroleum Earnings Are At Risk

Marathon Petroleum (NYSE: MPC  ) will release its quarterly report tomorrow, and investors have gotten a lot more anxious about the prospects for the refining company's future. With one important advantage that the company benefited from having all but disappeared, Marathon Petroleum earnings will be under pressure and could remain so for some time.

The good times for refining stocks came from the fact that they were able to buy cheap crude from domestic producers at much cheaper prices than what prevailed on world markets. They then took advantage of high prices for refined products to sell into the world market at an immense profit. But as those tailwinds dissipate, Marathon and its peers now face higher input costs and potentially burdensome new regulation that could require massive capital expenditures. Let's take an early look at what's been happening with Marathon Petroleum over the past quarter and what we're likely to see in its quarterly report.

Stats on Marathon Petroleum

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$23.57 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Are Marathon Petroleum earnings doomed to fall?
Analysts have slashed their views in recent months on Marathon Petroleum earnings, cutting more than $1 per share from their June-quarter estimates and more than $2.50 per share from full-year 2013 expectations. The stock has followed suit, falling 10% since late April.

Marathon has already warned investors that its second quarter could look ugly. A couple weeks ago, the company said that it expected net income to come in between $570 million and $600 million, a far cry from the $814 million from the year-ago quarter. Narrowing margins were largely to blame for the drop in earnings.

The trend toward narrowing spreads between West Texas Intermediate and Brent crude prices has gone on for some time. The impact showed up in Marathon's results last quarter, although maintenance costs played an important role. Yet rival Valero (NYSE: VLO  ) managed to sustain and even grow its margins in the first quarter, although it recently saw those throughput margins fall fairly significantly in its second-quarter results last week.

Still, Marathon has taken steps to ensure it can still use unconventional sources of cheap oil. It upgraded its Detroit refinery to handle heavy crude from Canadian oil sands, thereby benefiting from still-substantial discounts in prices of Canadian oil compared to WTI.

The big question facing the industry is whether prices will continue to support export expansion. Phillips 66 (NYSE: PSX  ) is aiming to boost its export capacity by another 50% despite the fact that it's currently using only about half its existing capacity. Similarly, Tesoro (NYSE: TSO  ) recently noted that falling use of refined fuels in the U.S. is making refiners much more dependent on export markets for demand. In particular, with Mexican refineries not as able to deal with Mexican heavy crude as U.S. refiners, the circular trade whereby crude came in from Mexico to be refined and then shipped back in the form of gasoline and diesel looks likely to continue.

In the Marathon Petroleum earnings report, look closely at changes in margins to identify whether the company has still been able to access low-cost sources of crude oil inputs. Without those cost advantages, profits will inevitably suffer unless discounts for domestic crude return in the near future.

Refiners don't like expensive oil, but these stocks do. You ought to know their names. To find out about them, check out The Motley Fool's "3 Stocks for $100 Oil." For FREE access to this special report, simply click here now.

Click here to add Marathon Petroleum to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2569854, ~/Articles/ArticleHandler.aspx, 9/29/2016 7:54:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:01 PM
MPC $42.64 Up +0.79 +1.89%
Marathon Petroleum CAPS Rating: ****
TSO $82.86 Down -0.03 -0.04%
Tesoro CAPS Rating: ****
VLO $55.11 Up +0.09 +0.16%
Valero Energy CAPS Rating: ****